I. Letters of Credit
A. Defnition and Nature o Letter o Credit
Usage and customs apply in commercial transactions in the absence o any particular provision in the Code o Commerce, as provided in Article 2 o the same Code. ence, the rule that all parties concerned in documentary credit operations deal in documents and not in goods bind the parties in a letter o credit transaction. (Bank  of te !ili""ine Islands vs. De Ren# $a%ri& Ind'stries In&. )* SCRA +*) (,-/00
An order o the court releasing the proceeds o an irrevocable letter o credit to the applicant, !hich !as issued to pay or tobacco purchased rom the benefciary o the letter o credit, violates the irrevocable nature o the letter o credit. An irrevocable letter o  credit cannot, during its lietime, be cancelled or modifed !ithout the e"press permission o the benefciary. (!ili""ine 1ir2inia To%a&&o Ad3inistration vs. De Los An2eles ,45 SCRA *5) (,-6600
 #he primary purpose o the letter o credit is to substitute or and thereore support, the agreement o the buyer$importer to pay money under a contract or other arrangement. ence, the ailure o  a buyer$importer to open a letter o credit as stipulated amounts to a breach o contract !hich !ould entitle the seller$e"porter to claim damages or such breach. (Relian&e Co33odities In&. 1s. Dae7oo Ind'strial Co. Ltd. ++6 SCRA *5* (,--)00
%n a letter o credit transaction, there are three separate and distinct relationships& a' bet!een the account party (buyer$importer' and the benefciary (seller$e"porter', !hich may be a contract o sale or non)sale* b' bet!een the account party and the issuing ban+, !here the ormer applies to the latter or a specifed L$C and agrees to reimburse the ban+ or amounts paid by it pursuant to the L$C* and c' bet!een the issuing ban+ and the benefciary !here the ormer, upon presentation o stipulated documents, pays the latter the amount under the L$C. uch relationships are interrelated but independent o one another. (Rod8ssen S'""l# Co3"an# In&. vs. $ar East Bank and Tr'st Co3"an# )* SCRA 4,6 (+//,00
 
issuing ban+ documents that !ould sho! that he has ta+en a-rmative steps to comply !ith the sales agreement. n the other hand, standby letters o credit are used in non)sale setting !here the benefciary presents documents that !ould sho! that the obligor has not complied !ith his obligation. (Trans9eld !ili""ines In&. vs. L'8on :#dro Cor". 55) SCRA )/ (+//500
 #he stay order issued by the rehabilitation court pursuant to the %nterim /ules o Corporate /ehabilitation does not apply to the benefciary o the letter o credit against the ban+s that issued it because the prohibition on the enorcement o claims against the debtor, guarantors or sureties o the debtors does not e"tend to the claims against the issuing ban+ in a letter o credit. Letters o credit are primary obligations and not accessory contracts and !hile they are security arrangements, they are not thereby converted into contracts o guaranty. (MWSS vs. :on. Da7a# 5)+ SCRA **- (+//500
0. 1arties to a Letter o Credit
. /ights and bligations o 1arties
A buyer !ho applied or a letter o credit to pay or imported dyestu3s must reimburse the issuing ban+ !hich paid the benefciary, even i the shipment contained colored chal+s. 0an+s are not re4uired to investigate i the contract underlying the letter o credit has been ulflled or not because in a transaction involving letter o credit, ban+s deal only !ith documents and not !ith goods. (Bank of te !ili""ine Islands vs. De Ren# $a%ri& Ind'stries In&. )* SCRA +*) (,-/00
 #he issuing ban+5s (%0AA' obligation under an %rrevocable tandby Letter o Credit e"ecuted to secure a contract o loan cannot be reduced by the direct payments made by the principal debtors to the creditor. Although a letter o credit is a security arrangement, it is not converted thereby into a contract o guaranty* the obligation o the ban+ under the letter o credit is original and primary. (Ins'lar Bank of Asia ; A3eri&a vs. Inter3ediate A""ellate Co'rt ,4 SCRA 5*/ (,-6600
 
it !ill underta+e the issuing ban+5s obligation as its o!n according to the terms and conditions o the credit. ($eati Bank ; Tr'st Co3"an# vs. Co'rt of A""eals ,-4 SCRA *4 (,--,00
Drats dra!n by the benefciary need not be presented to the applicant or acceptance beore the issuing ban+ can see+ reimbursement. nce the issuing ban+ has paid the benefciary ater the latter5s compliance !ith the terms o the letter o credit, the issuing ban+ becomes entitled to reimbursement. (!r'dential Bank ; Tr'st Co3"an# vs. IAC +,4 SCRA +* (,--+00
6hen the notiying ban+ entered into a discounting arrangement !ith the benefciary, it acts independently as a negotiating ban+. As such, the negotiating ban+ has a right to recourse against the issuer ban+ and until reimbursement is obtained, the benefciary, as the dra!er o the drat, continues to assume a contingent liability thereon. (Bank of A3eri&a vs. Co'rt of A""eals ++6 SCRA )* (,--)00
A notiying or advising ban+ does not incur any liability arising rom a raudulent letter o credit as its obligation is limited only to inorming the benefciary o the e"istence o the letter o credit. uch notiying ban+ does not !arrant the genuineness o the letter o credit but is bound only to chec+ its apparent authenticity. (Bank  of A3eri&a vs. Co'rt of A""eals ++6 SCRA )* (,--)00
6hile a marginal deposit, a collateral security, earns no interest in avor o the applicant, the ban+ is not only able to use the same or its o!n purposes, interest)ree, but it is also able to earn interest on the money loaned to the applicant. #he buyer$importer7s marginal deposit should then be set o3 against his debt, or it !ould be onerous to compute interest and other charges on the ace value o  the letter o credit !hich the ban+ issued, !ithout frst crediting or setting o3 the marginal deposit !hich the importer paid to the ban+. (A%ad vs. Co'rt of A""eals ,6, SCRA ,-, (,--/0* Consolidated Bank ; Tr'st Cor"oration vs. Co'rt of A""eals )*4 SCRA 4, (+//,00
An issuing ban+ !hich paid the benefciary o an e"pired letter o  credit can recover payment rom the applicant !hich obtained the goods rom the benefciary to prevent un8ust enrichment. (Rod8ssen S'""l# Co3"an# In&. vs. $ar East Bank and Tr'st Co3"an# )* SCRA 4,6 (+//,00
C. 0asic 1rinciples o Letter o Credit
 
. Doctrine o %ndependence
6here the applicant entered into a contract, the perormance o  !hich is secured by a standby letter o credit, the resort to arbitration by the applicant$contractor, in the absence o a stipulation that any dispute must frst be settled through arbitration beore the benefciay can dra! on the letter o credit, does not preclude the benefciary to dra! on the letter o credit upon its issuance o a certifcate o deault. #he claim o raud !ill not be su-cient to support an in8unction against payment by reason o the 9independence principle: !hich assures the benefciary o prompt payment independent o any breach o the main contract and precludes the issuing ban+ rom determining !hether the main contract is actually accomplished or not. (Trans9eld !ili""ines In&. vs. L'8on :#dro Cor". 55) SCRA )/ (+//500
 #he issuing ban+ is not liable or damages even i the shipment did not conorm to the specifcations o the applicant. Under the 9independence principle:, the obligation o the issuing ban+ to pay the benefciary arises once the latter is able to submit the stipulated documents under the letter o credit. ence, the ban+ is not liable or damages even i the shipment did not conorm to the specifcations o the applicant. (Land Bank of te !ili""ines vs. Monet<s E="ort and Man'fa&t'rin2 Cor". 5*) SCRA ,) (+//*00
 
2. <raud ="ception 1rinciple
 #he untruthulness o a certifcate accomplanying a demand or payment under a standy letter o credit may 4ualiy as raud su-cient to support in8unction against payment. o!ever, under the 9raud e"ception principle:, this must constitute raud in relation to the independent purpose or character o the letter o credit and not only raud under the main agreement* moreover, irreparable in8ury !ill be su3ered i in8unction !ill not be granted. (Trans9eld !ili""ines In&. vs. L'8on :#dro Cor". 55) SCRA )/ (+//500
>. Doctrine o trict Compliance
6hen the letter o credit re4uired the submission o a certifcation that the applicant$buyer has approved the goods prior to shipment, the un8ust reusal o the applicant$buyer to issue said certifcation is not su-cient to compel the ban+ to pay the benefciary thereo. Under the doctrine o strict compliance, the documents tendered must strictly conorm to the terms o the letter o credit, other!ise, the ban+ !hich accepts a aulty tender, acts on its o!n ris+s and may not be able to recover rom the applicant$buyer. ($eati Bank  ; Tr'st Co3"an# vs. Co'rt of A""eals ,-4 SCRA *4 (,--,00
I. Tr'st Re&ei"ts La7
A. Defnition$Concept o a #rust /eceipt #ransaction
. Loan$ecurity <eature
 #he #rust /eceipts La! punishes the dishonesty and abuse o  confdence in the handling o money or goods to the pre8udice o  another regardless o !hether the latter is the o!ner or not. #he la! does not see+ to enorce payment o the loan, thus, there is no violation o the constitutional provision against imprisonment or non)payment o debt. (!eo"le vs. :on. Nitafan and Bett# Sia An2 +/ SCRA +4 (,--+00
 
A trust receipt is a security transaction intended to aid in fnancing importers and retail dealers !ho do not have su-cient unds or resources to fnance the importation or purchase o merchandise, and !ho may not be able to ac4uire credit e"cept through utili?ation, as collateral o the merchandise imported or purchased. Under a letter o credit)trust receipt arrangement, a ban+ e"tends a loan covered by a letter o credit, !ith the trust receipt as a security or the loan* hence, the transaction involves a loan eature represented by a letter o credit, and a security eature !hich is in the covering trust receipt !hich secures an indebtedness. (Lee vs. Co'rt of A""eals )* SCRA *- (+//+00
2. !nership o the @oods, Documents and %nstruments under a #rust /eceipt
 #he transaction is a simple loan !hen the goods sub8ect o the agreement had been purchased and delivered to the supposed entrustee prior to the e"ecution o the trust receipt agreement. #he ac4uisition o o!nership over the goods beore the e"ecution o the trust receipt agreement ma+es the contract a simple loan, regardless o the denomination o the contract. (Colinares vs. Co'rt of A""eals ))- SCRA 4/- (+///00
/espondent Corporation is not an importer !hich ac4uired the bun+er uel oil or re)sale* it needed the oil or its o!n operations. ore importantly, at no time did title over the oil pass to petitioner ban+, but directly to respondent Corporation to !hich the oil !as directly delivered long beore the trust receipt !as e"ecuted* thus, the contract e"ecuted by the parties is a simple loan and not a trust receipt agreement. (Consolidated Bank ; Tr'st Cor". vs. Co'rt of A""eals )*4 SCRA 4, (+//,00
%n a trust receipt transaction, the entrustee has neither absolute o!nership, ree disposal nor the authority to reely dispose o the articles sub8ect o the agreement. ince the goods could not have been sub8ected to a valid mortgage, there can also be no valid oreclosure especially !hen the mortgagee !ho subse4uently oreclosed and purchased the said goods !ere in bad aith, having +no!ledge o the inclusion o such articles in a trust receipt agreement. (DB! vs. !r'dential Bank 5* SCRA 4+) (+//*00
0. /ights o the =ntruster
 
 #he security interest o the entruster pursuant to the !ritten terms o a trust receipt shall be valid as against all creditors o the entrustee or the duration o the trust receipt agreement, including among others, the laborers o the entrustee. #he only e"ception to the rule is !hen the properties are in the hands o an innocent purchaser or value and in good aith. (!r'dential Bank vs. National La%or Relations Co33ission +*, SCRA 5,+ (,--*00
C. bligation and Liability o the =ntrustee
Commercial invoices attached to the applications or letters o credit and o trust receipts, !hich only provide or the list o items sought to be purchased and their prices !ill not prove delivery o the goods to the entrustee. ence, criminal liability !ill not attach and the accused should be ac4uitted in the estaa cases. (Ra3os vs. Co'rt of A""eals ,*) SCRA +4 (,-600
6hile the presumption ound under the Negotiable %nstruments La! may not necessarily be applicable to trust receipts and letters o  credit, the presumption o consideration applies on the drats dra!n in connection !ith the letters o credit. ence, the drats signed by the benefciary$suppliers in connection !ith the corresponding letters o credit proved that said suppliers !ere paid by the ban+ (entruster' or the account o the entrustee. (Lee vs. Co'rt of  A""eals )* SCRA *- (+//+00 
6hen there is a violation o the #rust /eceipts La!, !hat is being punished is the dishonesty and abuse o confdence in the handling o money or goods to the pre8udice o another regardless o !hether the latter is the o!ner. o!ever, ailure to comply !ith the obligations due to serious li4uidity problems and ater the entrustee !as placed under rehabilitation does not amount to dishonesty and abuse o confdence, thus, the entrustee cannot be said to have violated the la!. (!ili"inas Bank vs. On2 )6 SCRA ) (+//+00
. 1ayment$Delivery o 1roceeds o ale or Disposition o @oods, Documents or %nstruments
 
complied !ith* thereore, the liability o the entrustee is only civil in nature. (Anton# L. N2 vs. !eo"le of te !ili""ines ?.R. No. ,)-/* A"ril +) +/,/0
Under the #rust /eceipts La!, intent to deraud is presumed !hen (' the entrustee ails to turn over the proceeds o the sale o goods covered by the trust receipt to the entruster* or (2' !hen the entrustee ails to return the goods under trust, i they are not disposed o in accordance !ith the terms o the trust receipts. 6hen both parties +no! that the entrustee could not have complied !ith the obligations under the trust receipt !ithout his ault, as !hen the goods sub8ect o the agreement !ere not intended or sale or resale, the transaction cannot be considered a trust receipt but a simple loan, !here the liability is limited to the payment o the purchase price. (Land Bank of te !ili""ines vs. !ere8 ?.R. No. ,44665 >'ne ,) +/,+0  
6hen both parties entered into an agreement +no!ing ully !ell that the return o the goods sub8ect o the trust receipt is not possible even !ithout any ault on the part o the trustee, it is not a trust receipt  transaction penali?ed under ec. > o 1D in relation to Art. >, par. (b' o the /1C, as the only obligation actually agreed upon by the parties   !ould be the return o the proceeds o the sale transaction. #his transaction becomes a mere loan, !here the borro!er is obligated to pay the ban+ the amount spent or the purchase o the goods. (:'r Tin @an2 vs. !eo"le of  te !ili""ines ?.R. No. ,-*,, A'2'st ,5 +/,)0
2. /eturn o @oods, Documents or %nstruments in Case o Non)ale
A trust receipt transaction is a security agreement, pursuant to !hich the entruster ac4uires a security interest in the goods, !hich are released to the possession o the entrustee !ho binds himsel to hold the goods in trust or the entruster and to sell or other!ise dispose o the goods or to return them in case o non)sale. #he return o the goods to the entruster ho!ever, does not relieve the entrustee o the obligation to pay the loan because the entruster is not the actual o!ner o the goods and merely holds them as o!ner in the artifcial concept or the purpose o giving stronger security or the loan. (1intola vs. Ins'lar Bank of Asia and A3eri&a ,*/ SCRA ,5/ (,-600
>. Liability or Loss o @oods, Documents or %nstruments
 
does not e"tinguish the civil obligation o the entrustee. ence, the act that the entrustee attempted to ma+e a tender o goods to the ban+ and as a conse4uence o the latter5s reusal, the goods !ere stored in the entrustee5s !arehouse and thereater gutted by fre, the liability o the entrustee still subsists* the principle o res perit  domino !ill not apply to the ban+ !hich holds only a security o  interest over the goods. (Rosario Te=tile Mills Cor". vs. :o3e Bankers Savin2s and Tr'st Co3"an# 54+ SCRA 66 (+//*00
. 1enal anctions i 3ender is a Corporation
/ecogni?ing the impossibility o imposing the penalty o  imprisonment on a corporation, it !as provided that i the entrustee is a corporation, the penalty shall be imposed upon the directors, o-cers, employees or other o-cials or persons responsible or the o3ense. o!ever, the person signing the trust receipt or the corporation is not solidarily liable !ith the entrustee)corporation or the civil liability arising rom the criminal o3ense unless he personally bound himsel under a separate contract o surety or guaranty. (On2 vs. Co'rt of A""eals 5/, SCRA 45- (+//)00
6hen the entrustee is a corporation, the director, o-cer, employee, or any person responsible or the violation o the #rust /eceipts La! is held criminally liable !ithout pre8udice to the civil liability, !hich is imposed upon the entrustee)corporation. #he act that the o-cer signed in his o-cial capacity means that the corporation is the one civilly liable* ho!ever, !hen such o-cer also signed a trust receipt in his personal capacity, he !ill also be held civilly liable together !ith the corporation, !ith the scope o liability depending on !hether he signed as a surety or as a guarantor. (T'"a8 I1 vs. Co'rt of A""eals 5* SCRA )-6 (+//*00
 #he act that the o-cer !ho signed the trust receipt on behal o  the entrustee)corporation signed in his o-cial capacity !ithout receiving the goods as he had never ta+en possession o such nor committing dishonesty and abuse o confdence in transacting !ith the entrustor, is immaterial. #he la! specifcally ma+es the director, o-cer, employee or any person responsible criminally liable precisely or the reason that a corporation, being a 8uridical entity, cannot be the sub8ect o the penalty o imprisonment. (Alfredo Cin2 vs. Se&retar# of >'sti&e 56, SCRA 4/- (+//400
D. /emedies Available
 
Ater the inomation is fled in court, compromise o the estaa case arising rom violation o the #rust /eceipts La! !ill not amount to novation and !ill not e"tinguish the criminal liability o the accused. (On2 vs. Co'rt of A""eals ,+5 SCRA *6 (,-6)00
Although the surrender o the goods to the entruster results in the ac4uittal o the accused in the estaa case, it is not a bar to the institution o a civil action or collection because o the loan eature (civil in nature' o the trust receipt transaction, !hich is entirely distinct rom its security eature (criminal in nature'. Accordingly, Article > o the Ne! Civil Code provided that !hen the civil action is based on an obligation not arising rom the act or omission complained o as a elony, such civil action may proceed independently o the criminal proceedings and regardless o the result o the latter. (1intola vs. Ins'lar Bank of Asia and A3eri&a ,*/ SCRA ,5/ (,-600
 #he entruster5s repossession o the sub8ect machinery and e4uipment, not or the purpose o transerring o!nership to the entruster but only to serve as security to the loan, cannot be considered payment o the loan under the trust receipt and letter o  credit. 1ayment !ould legally result only ater 1N0 had oreclosed on said securities, sold the same and applied the proceeds thereo  to #CC7s loan obligation. (!ili""ine National Bank vs. !ineda ,- SCRA , (,--,00
6hen the entrustee deaults on his obligation, the entruster has the discretion to avail o remedies !hich it deems best to protect its right. #he la! uses the !ord 9may: in granting to the entruster the right to cancel the trust and ta+e possession o the goods* hence, the option is given to the entruster. (So't Cit# :o3es In&. vs. BA $inan&e Cor"oration ), SCRA 4/) (+//,00
A civil case fled by the entruster against the entrustees based on the ailure o the latter to comply !ith their obligation under the  #rust /eceipt agreement is proper because this breach o obligation is separate and distinct rom any criminal liability or misuse and$or misappropriation o goods or proceeds reali?ed rom the sale o  goods released under the trust receipts. 0eing based on an obligation ex contractu and not ex delicto, the civil action may proceed independently o the criminal proceedings instituted against the entrustees regardless o the result o the latter. (Sar3iento vs. Co'rt of A""eals )-5 SCRA ),* (+//+00 
 
incompatible on every point. #he e"ecution o the emorandum o  Agreement, !hich provided or principal conditions incompatible !ith the trust agreement, e"tinguished the obligation under the trust receipts !ithout pre8udice to the debtor5s civil liability. (!ili"inas Bank vs. On2 )6 SCRA ) (+//+00
As provided under ection E, 1.D. No. , in the event o deault o  the entrustee, the entruster may cancel the trust and ta+e possession o the goods sub8ect o the trust or o the proceeds reali?ed thererom at any time* the entruster may, not less than fve days ater serving or sending o notice o intention to sell, proceed !ith the sale o the goods at public or private sale !here the entrustee shall receive any surplus but shall be liable to the entruster or any defciency. #his is by reason o the act that the initial repossession by the ban+ o the goods sub8ect o the trust receipt did not result in the ull satisaction o the entrustee5s loan obligation. (Landl ; Co3"an# vs. Metro"olitan Bank 5)* SCRA 4)- (+//500
=. 6arehouseman5s Lien
Not!ithstanding the right o 1N0 over the stoc+s o sugar as the endorsee o the 4uedans, delivery to it shall be e3ected only upon payment o the storage ees. #he !arehouseman may demand payment o his lien prior to the delivery o the stoc+s o sugar because under ection 2F o the 6arehouse /eceipts La!, the !arehouseman loses his lien upon the goods by surrendering possession thereo. (!ili""ine National Bank vs. Se >r. +*4 SCRA )6/ (,--400
A !arehouseman may enorce his lien under the ollo!ing instances& ' he may reuse to deliver the goods until his lien is satisfed* 2' he may sell the goods and apply the proceeds thereo  to the value o the lien* and >' by other means allo!ed by la! to a creditor against his debtor, or the collection rom the depositor o  all charges and advances !hich the depositor e"pressly or impliedly contracted !ith the !arehouseman* or such remedies allo!ed by la! or the enorcement o a lien against personal property. (!ili""ine National Bank vs. Sa#o >r. +-+ SCRA +/+ (,--600
 
!arehouseman5s ees but merely caused the ees and charges to cease to accrue rom the date o the re8ection by the !arehouseman to heed the previous la!ul demand or the release o the goods. (!ili""ine National Bank vs. Sa#o >r. +-+ SCRA +/+ (,--600
III. Ne2otia%le Instr'3ents La7
A. <orms and %nterpretation
. /e4uisites o Negotiability
A chec+ !hich reads 91ay to the =GU%#A0L= 0ANH%N@ C/1/A#%N rder o A$C < CAB%LL= =N#=/1/%=, %NC.: is not negotiable because the payee ceased to be indicated !ith reasonable certainty in contravention o ection I o the Negotiable %nstruments La!. As !orded, it could be accepted as deposit to the account o the party named ater the symbols ;A$C,; or payable to the 0an+ as trustee, or as an agent, or Casville =nterprises, %nc., !ith the latter being the ultimate benefciary. (E'ita%le Bankin2 Cor"oration vs. te :onora%le Inter3ediate A""ellate Co'rt and Te Ed7ard >. Nell Co. ?.R. No. 55*, Ma# +* ,-660
6ithout the !ords ;or order or ;to the order o;, the instrument is payable only to the person designated therein and is thereore non) negotiable. Any subse4uent purchaser thereo !ill not en8oy the advantages o being a holder o a negotiable instrument, but !ill merely ;step into the shoes; o the person designated in the instrument and !ill thus be open to all deenses available against the latter. (>'anita Salas vs. :on. Co'rt of A""eals and $irst $inan&e ; Leasin2 Cor"oration ?.R. No. 466 >an'ar# ++ ,--/0
 
to the bearer o the documents or, or that matter, !hosoever may be the bearer at the time o presentment.   Calte= (!ili""ines0 In&. vs.  Co'rt of A""eals and Se&'rit# Bank and Tr'st Co3"an# ?.R. No. -*) A'2'st ,/ ,--+
 #he language o negotiability !hich characteri?es a negotiable paper as a credit instrument is its reedom to circulate as a substitute or money. #his reedom in negotiability is totally absent in a certifcate indebtedness as it merely to pay a sum o money to a specifed person or entity or a period o time. (Traders Ro#al Bank vs.  Co'rt of A""eals $ilriters ?'arant# Ass'ran&e Cor"oration and Central Bank of te !ili""ines ?.R. No. -))- Mar& ) ,--0
Under the fctitious payee rule, a chec+ made e"pressly payable to a non)fctitious and e"isting person is not necessarily an order instrument i the payee is not the intended recipient o the proceeds o the chec+. #here is, ho!ever, a commercial bad aith e"ception to this rule !hich provides that a sho!ing o commercial bad aith on the part o the dra!ee ban+, or any transeree o the chec+ or that matter, !ill !or+ to strip it o this deense. (!ili""ine National Bank vs. Erlando T. Rodri2'e8 and Nor3a Rodri2'e8 ?.R. No. ,/)+* Se"te3%er +4 +//60
Under the Negotiable %nstruments La!, a chec+ made payable to cash is payable to the bearer and could be negotiated by mere delivery !ithout the need o an indorsement. o!ever, the dra!er o the post)dated chec+ can not be liable or estaa to the person !ho did not ac4uire the instrument directly rom dra!er but through negotiation o another by mere delivery. #his is because the dra!er did not use the chec+ to deraud the holder$private complainant. !EO!LE O$ T:E !:ILI!!INES 1S. ?ILBERT RE@ES WA?AS. ?.R. No. ,*-5) Se"te3%er 5 +/,)
2. Hinds o Negotiable %nstruments
 
(!ili""ine Ed'&ation Co. in&. vs. Ma'ri&io A. Soriano et al. ?.R. No. L++5/* >'ne )/ ,-,0
0an+ !ithdra!al slips are non)negotiable and the giving o  immediate notice o dishonor o negotiable instruments does not apply in this case. ince the !ithdra!al slips deposited !ith petitioner5s current account !ith Citiban+ !ere not chec+s, Citiban+ !as not bound to accept the !ithdra!al slips as a valid mode o  deposit, but having erroneously accepted them as such, Citiban+ K and petitioner as account)holder K must bear the ris+s attendant to the acceptance o these instruments. ($irestone Tire ; R'%%er Co3"an# of te !ili""ines vs. Co'rt of A""eals and L'8on Develo"3ent Bank ?.R. No. ,,)+)4 Mar& * +//,0
A chec+ is 9a bill o e"change dra!n on a ban+ payable on demand: !hich may either be an order or a bearer instrument. Under ection F(c' o the N%L, a chec+ payable to a specifed payee may nevertheless be considered as a bearer instrument i it is payable to the order o a fctitious or non)e"isting person li+e chec+s issued to 91rinsipe Abante: or 9i ala+as at si aganda,: !ho are !ell) +no!n characters in 1hilippine mythology. (!ili""ine National Bank vs. Erlando T. Rodri2'e8 and Nor3a Rodri2'e8 ?.R. No. ,/)+* Se"te3%er +4 +//60
A certifcate o deposit is defned as a !ritten ac+no!ledgement by a ban+ o the receipt o a sum o money on deposit !hich the ban+ promise to pay to the depositor or the order o the depositor or to some other person or his order !hereby the relation o debtor and creditor bet!een the ban+ and the depositor is created. A document to be considered a certifcate o deposit need not be in a specifc orm.  #hus, a passboo+ o an interest)earning deposit account issued by a ban+ is a certifcate o deposit dra!ing interest because it is considered a !ritten ac+no!ledgment by a ban+ that it has accepted a deposit o a sum o money rom a depositor. #hus, it is sub8ect to documentary stamp ta". !r'dential Bank v. Co33issioner of  Internal Reven'e (CIR0 ?.R. No. ,6/)-/ >'l# + +/,,
  0. Completion and Delivery
 
(Tin2 Tin2 !'a vs. S"o'ses Benito Lo B'n Tion2 and Caroline Siok Cin2 Ten2 ?.R. No. ,-644/ O&to%er +) +/,)0
. %nsertion o Date
2. Completion o 0lan+s
%n any case, it is no deense that the promissory notes !ere signed in blan+ as ection o the Negotiable %nstruments La! concedes the prima facie authority o the person in possession o negotiable instruments to fll in the blan+s. ('irino ?on8ales Lo22in2 Con&essionaire 'irino ?on8ales and E'fe3ia ?on8ales vs.
te Co'rt of A""eals (CA0 and Re"'%li& !lanters Bank ?. R. No. ,+4*46 A"ril )/ +//)0
>. %ncomplete and Undelivered %nstruments
. Complete but Undelivered %nstruments
As Assistant City <iscal, the source o the salary o the payee is public unds !hich he receives in the orm o chec+s rom the Department o Mustice. ince the payee o a negotiable interest ac4uires no interest !ith respect thereto until it is delivered, such chec+s, as a necessary conse4uence o being public und, may not be garnished because such unds do not belong to him. (Loreto D. de la 1i&toria as Cit# $is&al of Manda'e Cit# and in is "ersonal &a"a&it# as 2arnisee vs. :on. >ose !. B'r2os !residin2 >'d2e RTC Br. F1II Ce%' Cit# and Ra'l :. Ses%reGo ?.R. No. ,,,,-/ >'ne + ,--*0
 
 #he act that a person, other than the named payee o the crossed chec+, !as presenting it or deposit should have put the ban+ on guard. %t should have verifed i the payee authori?ed the holder to present the same in its behal or indorsed it to him. #he ban+5s reliance on the holder5s assurance that he had good title to the three chec+s constitutes gross negligence even though the holder !as related to the ma8ority stoc+holder o the payee. 6hile the chec+ !as not delivered to the payee, the suit may still prosper because the payee did not assert a right based on the undelivered chec+ but on 4uasi)delict. E'ita%le Bankin2 Cor"oration vs S"e&ial Steel !rod'&ts >'ne ,) +/,+
C. ignature  
. igning in #rade Name  
2. ignature o Agent
Under ection 2J o the Negotiable %nstruments La!, !here the instrument contains or a person adds to his signature !ords indicating that he signs or or on behal o a principal or in a representative capacity, he is not liable on the instrument i he !as duly authori?ed* but the mere addition o !ords describing him as an agent or as fling a representative character, !ithout disclosing his principal, does not e"empt him rom personal liability. %n the instant case, an inspection o the drats accepted by the deendant sho!s that no!here has he disclosed that he !as signing as a representative o the 1hilippine =ducation <oundation Company and such ailure to disclose his principal ma+es him personally liable or the drats he accepted. (Te !ili""ine Bank of Co33er&e vs.  >ose M. Ar'e2o ?.R. Nos. L+*6)4) >an'ar# ), ,-6,0
>. %ndorsement by inor or Corporation
. <orgery
 
recover them. #he payee ought to be allo!ed to recover directly rom the collecting ban+, regardless o !hether the chec+ !as delivered to the payee or not. (West3ont Bank (for3erl# Asso&iated Bankin2 Cor".0 vs. E'2ene On2 ?.R. No. ,)+*4/  >an'ar# )/ +//+0
 #he possession o a chec+ on a orged or unauthori?ed indorsement is !rongul, and !hen the money is collected on the chec+, the ban+ can be held or moneys had and received.5 #he proceeds are held or the rightul o!ner o the payment and may be recovered by him.  #he position o the ban+ ta+ing the chec+ on the orged or unauthori?ed indorsement is the same as i it had ta+en the chec+ and collected !ithout indorsement at all. #he act o the ban+ amounts to conversion o the chec+.  (Asso&iated Bank and Conrado Cr'8 vs. :on. Co'rt of A""eals and Merle 1. Re#es doin2 %'siness 'nder te na3e and st#le HMelissa<s RTWH ?.R. No. 6-6/+ Ma# ,--+0
%t is a rule that !hen a signature is orged or made !ithout the authority o the person !hose signature it purports to be, the chec+ is !holly inoperative and no right to retain the instrument, or to give a discharge thereor, or to enorce payment thereo against any party, can be ac4uired through or under such signature. o!ever, the rule does provide or an e"ception, namely& ;unless the party against !hom it is sought to enorce such right is precluded rom setting up the orgery or !ant o authority.; %n the instant case, it is the e"ception that applies as the petitioner is precluded rom setting up the orgery, assuming there is orgery, due to his o!n negligence in entrusting to his secretary his credit cards and chec+boo+ including the verifcation o his statements o account. (Ra3on . Il'sorio vs. :on. Co'rt of A""eals ?.R. No. ,)-,)/ Nove3%er + +//+0
A orged signature is a real or absolute deense, and a person !hose signature on a negotiable instrument is orged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it. #he countereiting o any !riting, consisting in the signing o another5s name !ith intent to deraud, is orgery. (Bank of te !ili""ine Islands vs. Casa Montessori Internationale and Leonardo T. @a%'t ?.R. No. ,5-5*5 Ma# +6 +//50
 
no right to enorce the payment o a chec+ can arise out o a orged signature. ince the dra!er is not precluded by negligence rom setting up the orgery, the general rule should apply. (Sa3s'n2 Constr'&tion Co3"an# !ili""ines In&.  vs.  $ar East Bank  and Tr'st Co3"an# and Co'rt Of A""eals ?.R. NO. ,+-/,* A'2'st ,) +//50
As bet!een a ban+ and its depositor, !here the ban+5s negligence is the pro"imate cause o the loss and the depositor is guilty o  contributory negligence, the greater proportion o the loss shall be borne by the ban+. #he ban+ !as negligent because it did not properly veriy the genuineness o the signatures in the applications or manager5s chec+s !hile the depositor !as negligent because it clothed its accountant$boo++eeper !ith apparent authority to transact business !ith the 0an+ and it did not e"amine its monthly statement o account and report the discrepancy to the 0an+. the court allocated the damages bet!een the ban+ and the depositor on a J)J ratio.K1hilippine National Bank vs. $$ Cr'8 and Co3"an# ?.R. No. ,)+*- >'l# +* +/,,
  6hile its manager orged the signature o the authori?ed signatories o clients in the application or manager5s chec+s and orged the signatures o the payees thereo, the dra!ee ban+ also ailed to e"ercise the highest degree o diligence re4uired o ban+s in the case at bar. %t allo!ed its manager to encash the anager5s chec+s that !ere plainly crossed chec+s. A crossed chec+ is one !here t!o parallel lines are dra!n across its ace or across its corner. 0ased on  8urisprudence, the crossing o a chec+ has the ollo!ing e3ects& (a' the chec+ may not be encashed but only deposited in the ban+* (b' the chec+ may be negotiated only once O to the one !ho has an account !ith the ban+* and (c' the act o crossing the chec+ serves as a !arning to the holder that the chec+ has been issued or a defnite purpose and he must in4uire i he received the chec+ pursuant to this purpose* other!ise, he is not a holder in due course. %n other !ords, the crossing o a chec+ is a !arning that the chec+ should be deposited only in the account o the payee. 6hen a chec+ is crossed,it is the duty o the collecting ban+ to ascertain that the chec+ is only deposited to the payee5s account. !ili""ine Co33er&ial International Bank vs. Bal3a&eda?.R. No. ,*6,5) Se"te3%er +, +/,,
D. Consideration
 
signature appears thereon is deemed to have become a party thereto or value. #hus, the mere introduction o the instrument sued on in evidence  prima facie entitles the plainti3 to recovery. <urther, the rule is 4uite settled that a negotiable instrument is presumed to have been given or indorsed or a su-cient consideration unless other!ise contradicted and overcome by other competent evidence. (TravelOn In&. vs. Co'rt of A""eals and Art'ro S. Miranda ?.R. No. L*4,4- >'ne +4 ,--+0
%n actions based upon a negotiable instrument, it is unnecessary to aver or prove consideration, or consideration is imported and presumed rom the act that it is a negotiable instrument. #he presumption e"ists !hether the !ords ;value received; appear on the instrument or not. (Re3i2io S. On2 vs. !eo"le of te !ili""ines and Co'rt of A""eals ?.R. No. ,)-//4 Nove3%er + +///0
Letters o credit and trust receipts are not negotiable instruments, but drats issued in connection !ith letters o credit are negotiable instruments. 6hile the presumption ound under the Negotiable %nstruments La! may not necessarily be applicable to trust receipts and letters o credit, the presumption that the drats dra!n in connection !ith the letters o credit have su-cient consideration applies. (Carles Lee C'a Siok S'# Mariano Sio Alfonso  @a" Ri&ard 1elas&o and Alfonso Co vs. Co'rt of A""eals and !ili""ine Bank of Co33'ni&ations ?.R. NO. ,,-,) $e%r'ar# , +//+0
6hen promissory notes appear to be negotiable as they meet the re4uirements o ection o the Negotiable %nstruments La!, they are  prima facie  deemed to have been issued or consideration unless su-cient evidence !as adduced to sho! other!ise. ('irino ?on8ales Lo22in2 Con&essionaire 'irino ?on8ales and E'fe3ia ?on8ales vs. te Co'rt of A""eals (CA0 and Re"'%li& !lanters Bank ?. R. No. ,+4*46 A"ril )/ +//)0
 
convincing evidence to overthro! the presumption and prove that the chec+s !ere in act issued !ithout valuable consideration. 1etitioner, ho!ever, has not presented any credible evidence to rebut the presumption, as !ell as North tar5s assertion, that the chec+s !ere issued as payment or the UPI,JJJ petitioner o!ed to the corporation and not to the manager !ho acilitate the und transer. Ca#anan v. Nort Star International Travel In&.?.R. No. ,+-*5 O&to%er * +/,,
=. Accommodation 1arty
ection 2F o the Negotiable %nstruments La! by clear mandate ma+es the accomodation party ;liable on the instrument to a holder or value, not!ithstanding that such holder at the time o ta+ing the instrument +ne! him to be only an accommodation party.; %t is not a valid deense that the accommodation party did not receive any valuable consideration !hen he e"ecuted the instrument. %t is not correct to say that the holder or value is not a holder in due course merely because at the time he ac4uired the instrument, he +ne! that the indorser !as only an accommodation party. (An2 Tion2 vs. Loren8o Tin2 doin2 %'siness 'nder te na3e ; st#le of  !r'nes !reserves M$?. ; $eli"e An2 ?.R. No. L+44 $e%r'ar# ++ ,-460
6hen a promissory note !hich is payable to @% is not payable to bearer or order, such instrument is non)negotiable. As such, third party mortgagor !ho mortgaged his property to secure the obligation o another is not liable as an accommodation party but liable under Article 2JI o the Civil Code to the e3ect that third persons !ho are not parties to the principal obligation may secure the latter by pledging or mortgaging their o!n property. (?SIS vs. Co'rt of A""eals ?.R. No. L5/6+5 $e%r'ar# +) ,-6-0
6hen the chec+s are dishonored or lac+ o unds, the party !ho indorsed those chec+s as accommodation endorser is liable or the payment o the chec+s.  (!eo"le vs. Manie2o ,56 SCRA )/ ,-60
 
6hile a ma+er !ho signed a promissory note or the beneft o his co)ma+er ( !ho received the loan proceeds ' is considered an accommodation party, he is, nevertheless, entitled to a !ritten notice on the deault and the outstanding obligation o the party accommodated. #here being no such !ritten notice, the 0an+ is grossly negligent in terminating the credit line o the accommodation party or the unpaid interest dues rom the loans o  the party accommodated and in dishonoring a chec+ dra!n against the such credit line. ?on8ales vs !illi""ine Co33er&ial and International Bank ?R No. ,6/+* $e%r'ar# +) +/,,
  <. Negotiation
. Distinguished rom Assignment
% an assigned promissory note had already been e"tinguished because its ma+er is similarly indebted to the assignor, then the deense o set)o3 or legal compensation could also be invo+ed against the assignee o the note. #he debtor5s consent is not needed to e3ectuate assignment o credit and negotiation. (Ses%reno vs. Co'rt of A""eals +++ SCRA 544 ,--)0
2. odes o Negotiation
6here a chec+ is made payable to the order o 5cash5, the !ord cash5does not purport to be the name o any person5, and hence the instrument is payable to bearer. #he dra!ee ban+ need not obtain any indorsement o the chec+, but may pay it to the person presenting it !ithout any indorsement. (An2 Tek Lian vs. te Co'rt of A""eals ?.R. No. L+*,4 Se"te3%er +* ,-*/0
Under the Negotiable %nstruments La!, an instrument is negotiated !hen it is transerred rom one person to another in such a manner as to constitute the transeree the holder thereo, and a holder may be the payee or indorsee o a bill or note, !ho is in possession o it, or the bearer thereo. %n case o a bearer instrument, mere delivery !ould su-ce. Calte= (!ili""ines0 In&. vs. Co'rt of A""eals and Se&'rit# Bank and Tr'st Co3"an# ?.R. No. -*) A'2'st ,/ ,--+
>. Hinds o %ndorsements
 
6here the payee ac4uired the chec+ under circumstances that should have put it to in4uiry as to the title o the holder !ho negotiated the chec+ to him, the payee has the duty to present evidence that he ac4uired the chec+ in good aith. As holder7s title !as deective or suspicious, it cannot be stated that the payee ac4uired the chec+ !ithout +no!ledge o said deect in holder7s title, and or this reason the presumption that it is a holder in due course or that it ac4uired the instrument in good aith does not e"ist. (1i&ente R. De O&a3"o ; Co.  vs. Anita ?at&alian et al. ?.R. No. L,*,+4 Nove3%er )/ ,-4,0
A holder in due course holds the instrument ree rom any deect o  title o prior parties, and ree rom deenses available to prior parties among themselves, and may enorce payment o the instrument or the ull amount thereo. #his being so, petitioner cannot set up against respondent the deense o nullity o the contract o sale bet!een her and B. (>'anita Salas vs. :on. Co'rt of A""eals and $irst $inan&e ; Leasin2 Cor"oration ?.R. No. 466 >an'ar# ++ ,--/0
1ossession o a negotiable instrument ater presentment and dishonor, or payment, is utterly inconse4uential* it does not ma+e the possessor a holder or value !ithin the meaning o the la!. %t gives rise to no liability on the part o the ma+er or dra!er and indorsers. (Stel&o Marketin2 Cor"oration  vs.  :on. Co'rt of  A""eals and Steel7eld Cor"oration of te !ili""ines In&. ?.R. No. -4,4/ >'ne , ,--+0
%t is then settled that crossing o chec+s should put the holder on in4uiry and upon him devolves the duty to ascertain the indorser5s title to the chec+ or the nature o his possession. <ailing in this respect, the holder is declared guilty o gross negligence amounting to legal absence o good aith, contrary to ec. 2(c' o the Negotiable %nstruments La!, and as such the consensus o authority is to the e3ect that the holder o the chec+ is not a holder in due course. (Bataan Ci2ar and Ci2arette $a&tor# In&. vs. te Co'rt of A""eals and State Invest3ent :o'se In&. ?.R. No. -)/56 Mar& ) ,--50
 
 #he !eight o authority sustains the vie! that a payee may be a holder in due course. ence, the presumption that he is a prima acie holder in due course applies in his avor. o!ever, said presumption may be rebutted and vital to the resolution o this issue is the concurrence o all the re4uisites provided or in ection 2 o the Negotiable %nstruments La!. (Cel# @an2 vs. :on. Co'rt of A""eals !ili""ine Co33er&ial International Bank $ar East Bank ; Tr'st Co. E'ita%le Bankin2 Cor"oration !re3 Candira3ani and $ernando David ?.R. No. ,)6/5 A'2'st ,* +//)0
2. Deenses Against the older
. Liabilities o 1arties  
. a+er
Under the Negotiable %nstruments La!, persons !ho !rite their names on the ace o promissory notes are ma+ers and liable as such. (Re"'%li& !lanters Bank vs. Co'rt of A""eals +,4 SCRA )/ ,--+0
  2. Dra!er
 #he acceptance o a chec+ implies an underta+ing o due diligence in presenting it or payment, and i he rom !hom it is received sustains loss by !ant o such diligence, it !ill be held to operate as actual payment o the debt or obligation or !hich it !as given. % no presentment is made at all, the dra!er cannot be held liable irrespective o loss or in8ury unless presentment is other!ise e"cused. (M#ron C. !a"a vs. A.U. 1alen&ia ; Co. In&. et al. ?.R. No. ,/*,66. >an'ar# +) ,--60
%n the case o DAUD, the depositor has, on its ace, su-cient unds in his account, although it is not available yet at the time the chec+ !as dra!n, !hereas in DA%<, the depositor lac+s su-cient unds in his account to pay the chec+. oreover, DAUD does not e"pose the dra!er to possible prosecution or estaa and violation o 01 22, !hile DA%< sub8ects the depositor to liability or such o3enses. (Bank of te !ili""ine Islands vs. Re#nald R. S'are8 ?.R. No. ,4*/ Mar& ,* +/,/0
>. Acceptor
 
such encashment regardless o !hether or not the chec+s !ere actually delivered to the payee. (Asso&iated Bank and Conrado Cr'8 vs. :on. Co'rt of A""eals and Merle 1. Re#es doin2 %'siness 'nder te na3e and st#le HMelissa<s RTWH ?.R. No. 6-6/+ Ma# ,--+0
As a general rule, a ban+ or corporation !ho has obtained possession o a chec+ upon an unauthori?ed or orged indorsement o the payee5s signature and !ho collects the amount o the chec+ rom the dra!ee, is liable or the proceeds thereo to the payee or other o!ner, not!ithstanding that the amount has been paid to the person rom !hom the chec+ !as obtained. #he theory o the rule is that the possession o the chec+ on the orged or unauthori?ed indorsement is !rongul and !hen the money had been collected on the chec+, the proceeds are held or the rightul o!ners !ho may recover them. #he payee ought to be allo!ed to recover directly rom the collecting ban+, regardless o !hether the chec+ !as delivered to the payee or not. West3ont Bank (for3erl# Asso&iated Bankin2 Cor".0 vs. E'2ene On2 ?.R. No. ,)+*4/  >an'ar# )/ +//+
% a ban+ pays a orged chec+, it must be considered as paying out o its unds and cannot charge the amount so paid to the account o  the depositor. A ban+ is liable, irrespective o its good aith, in paying a orged chec+. (Sa3s'n2 Constr'&tion Co3"an# !ili""ines In&. vs. $ar East Bank and Tr'st Co3"an# and Co'rt Of A""eals ?.R. NO. ,+-/,* A'2'st ,) +//50
. %ndorser
ection > o the Negotiable %nstruments La! ma+es ;a person placing his signature upon an instrument other!ise than as ma+er, dra!er or acceptor; a general indorser ;unless he clearly indicates by appropriate !ords his intention to be bound in some other capacity.; (An2 Tion2 vs. Loren8o Tin2 doin2 %'siness 'nder te na3e ; st#le of !r'nes !reserves M$?. ; $eli"e An2 ?.R. No. L+44 $e%r'ar# ++ ,-460
 
 #he collecting ban+ !hich accepted a post)dated chec+ or deposit and sent it or clearing and the dra!ee ban+ !hich cleared and honored the chec+ are both liable to the dra!er or the entire ace value o the chec+. Allied Bankin2 Cor"oration vs. Bank of te !ili""ine Islands ?R. ,66)4) $e%r'ar# + +/,)
. 6arranties
 #he sub8ect chec+s !ere accepted or deposit by the 0an+ or the account o ayson although they !ere crossed chec+s and the payee !as not ayson but elissa5s /#6. #he 0an+ stamped thereon its guarantee that ;all prior endorsements and$or lac+ o  endorsements (!ere' guaranteed.; 0y such deliberate and positive act, the 0an+ had or all legal intents and purposes treated the said chec+s as negotiable instruments and, accordingly, assumed the !arranty o the endorser. (Asso&iated Bank and Conrado Cr'8 vs. :on. Co'rt of A""eals and Merle 1. Re#es doin2 %'siness 'nder te na3e and st#le HMelissa<s RTWH ?.R. No. 6-6/+ Ma# ,--+0
%. 1resentment or 1ayment
 #he e3ects o crossing a chec+ relate to the mode o its presentment or payment. Under ection E2 o the Negotiable %nstruments La!, presentment or payment must be made by the holder or by some person authori?ed to receive payment on his behal. 6ho the holder or authori?ed person depends on the ace o  the chec+. (Asso&iated Bank and Conrado Cr'8 vs. :on. Co'rt of A""eals and Merle 1. Re#es doin2 %'siness 'nder te na3e and st#le HMelissa<s RTWH ?.R. No. 6-6/+ Ma# ,--+0
. Necessity o 1resentment or 1ayment
Under the Negotiable %nstruments La!, an instrument not payable on demand must be presented or payment on the day it alls due. 6hen the instrument is payable on demand, presentment must be made !ithin a reasonable time ater its issue. %n the case o a bill o  e"change, presentment is su-cient i made !ithin a reasonable time ater the last negotiation thereo. (International Cor"orate Bank vs. ?'e&o )*, SCRA *,4 +//,0
2. 1arties to 6hom 1resentment or 1ayment hould 0e ade
>. Dispensation !ith 1resentment or 1ayment
 
 M. Notice o Dishonor
 #he term ;notice o dishonor; denotes that a chec+ has been presented or payment and !as subse4uently dishonored by the dra!ee ban+. #his means that the chec+ must necessarily be due and demandable because only a chec+ that has become due can be presented or payment and subse4uently be dishonored. A postdated chec+ cannot be dishonored i presented or payment beore its due date. (>ai3e Di&o vs. :on. Co'rt of A""eals and !eo"le of te !ili""ines ?.R. NO. ,5,44- $e%r'ar# +6 +//*0
. 1arties to 0e Notifed
Notice o dishonor to the corporation, !hich has a personality distinct and separate rom the o-cer o the corporation, does not constitute notice to the latter. #he absence o notice o dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. (Lao vs. Co'rt of A""eals ?.R. No. ,,-,6 >'ne +/ ,--0 
% the dra!er or ma+er is an o-cer o a corporation, the notice o  dishonor to the said corporation is not notice to the employee or o-cer !ho dre! or issued the chec+ or and in its behal. (Ofelia Mari2o3en vs. !eo"le of te !ili""ines ?.R. No. ,*)5*, Ma# +4 +//*0
Under the Negotiable %nstruments La!, notice o dishonor is not re4uired i the dra!er has no right to e"pect or re4uire the ban+ to honor the chec+, or i the dra!er has countermanded payment. %n the instant case, all the chec+s !ere dishonored or any o the ollo!ing reasons& ;account closed;, ;account under garnishment;, insu-ciency o unds;, or ;payment stopped.; %n the frst three instances, the dra!ers had no right to e"pect or re4uire the ban+ to honor the chec+s, and in the last instance, the dra!ers had countermanded payment. (?reat Asian Sales Center Cor"oration and Tan Con2 Lin vs. te Co'rt of A""eals and Ban&asia $inan&e and Invest3ent Cor"oration ?.R. No. ,/*5 A"ril +* +//+0
2. 1arties 6ho ay @ive Notice and Dishonor
 
deposits, the chec+ !as not issued !ithout su-cient unds and !as not dishonored due to insu-ciency o unds. =ven !ith uncollected deposits, the ban+ may honor the chec+ at its discretion in avor o  avored clients, in !hich case there !ould be no violation o 0. 1. 22. (Eli8a T. Tan vs. !eo"le of te !ili""ines ?.R. No. ,5,544  >an'ar# ,- +//,0 
>. =3ect o Notice
%n the case o DAUD, the depositor has, on its ace, su-cient unds in his account, although it is not available yet at the time the chec+ !as dra!n, !hereas in DA%<, the depositor lac+s su-cient unds in his account to pay the chec+. oreover, DAUD does not e"pose the dra!er to possible prosecution or estaa and violation o 01 22, !hile DA%< sub8ects the depositor to liability or such o3enses. (Bank of te !ili""ine Islands vs. Re#nald R. S'are8 ?.R. No. ,4*/ Mar& ,* +/,/0
 #he ailure o the prosecution to prove the e"istence and receipt by petitioner o the re4uisite !ritten notice o dishonor and that he !as given at least fve ban+ing days !ithin !hich to settle his account constitutes su-cient ground or his ac4uittal in a case or violation o 01 22. (>a3es Svendsen vs. !eo"le of te !ili""ines ?.R. NO. ,*)6, $e%r'ar# +4 +//60
. <orm o Notice
A notice o dishonor received by the ma+er or dra!er o the chec+ is thus indispensable beore a conviction or violation o 01 22 can ensue. #he notice o dishonor may be sent by the o3ended party or the dra!ee ban+, and it must be in !riting. A mere oral notice to pay a dishonored chec+ !ill not su-ce. #he lac+ o a !ritten notice is atal or the prosecution. (>ai3e Di&o  vs.  :on. Co'rt of  A""eals and !eo"le of te !ili""ines ?.R. NO. ,5,44- $e%r'ar# +6 +//*0
. 6aiver
H. Discharge o Negotiable %nstrument
. Discharge o Negotiable %nstrument
 
%n depositing the chec+ in his name, the depositor did not become the out)right o!ner o the amount stated therein. 0y depositing the chec+ !ith the ban+, depositor !as, in a !ay, merely designating the ban+ as the collecting ban+. #his is in consonance !ith the rule that a negotiable instrument, such as a chec+, !hether a manager5s chec+ or ordinary chec+, is not legal tender. As such, ater receiving the deposit, under its o!n rules, the ban+ shall credit the amount to the depositor5s account or inuse value thereon only ater the dra!ee ban+ shall have paid the amount o the chec+ or the chec+ has been cleared or deposit. #he depositor5s contention that ater the lapse o the >)day period the amount o a deposited chec+ could be !ithdra!n even in the absence o a clearance thereon, other!ise it could ta+e a long time beore a depositor could ma+e a !ithdra!al is untenable. aid practice amounts to a disregard o the clearance re4uirement o the ban+ing system. Bank of te !ili""ine Islands vs. Co'rt of A""eals )+4 SCRA 45, (+///0
ere delivery o a chec+ does not discharge the obligation. #he obligation is not e"tinguished and remains suspended until the payment by commercial document is actually reali?ed. #hus, although the value o a chec+ !as deducted rom the unds o the dra!er but the unds !ere never delivered to the payee because the dra!ee ban+ set o3 the amount against the losses it incurred rom the orgery o the dra!er5s chec+, the dra!er5s obligation to the payee remains unpaid. Ce%' International $inan&e Cor"oration vs. Co'rt of A""eals ),4 SCRA 566 (,---0
6hile ection F o the Negotiable %nstrument La! in relation to
Article 2> o the Civil Code provides that one o the modes o 
discharging a negotiable instrument is by any other act !hich !ill
discharge a simple contract or the payment o money, such as
novation, the acceptance by the holder o another chec+ !hich
replaced the dishonored ban+ chec+ did not result to novation.
 #here are only t!o !ays !hich indicate the presence o novation
and thereby produce the e3ect o e"tinguishing an obligation by
another !hich substitutes the same. <irst, novation must be
e"plicitly stated and declared in une4uivocal terms as novation is
never presumed. econdly, the old and the ne! obligations must be
incompatible on every point. %n the instant case, there !as no
e"press agreement that the holder5s acceptance o the replacement
chec+ !ill discharge the dra!er and endorser rom liability. Neither
is there incompatibility because both chec+s !ere given precisely to
terminate a single obligation arising rom the same transaction.
 
no. ,,--6 O&to%er +/ +/,/
2. Discharge o 1arties econdarily Liable
>. /ight o 1arty 6ho Discharged %nstrument
. /enunciation by older
L. aterial Alteration
. Concept
An alteration is said to be material i it alters the e3ect o the instrument. %t means an unauthori?ed change in an instrument that purports to modiy in any respect the obligation o a party or an unauthori?ed addition o !ords or numbers or other change to an incomplete instrument relating to the obligation o a party. %n other !ords, a material alteration is one !hich changes the items !hich are re4uired to be stated under ection o the Negotiable %nstruments La!. (!ili""ine National Bank vs. Co'rt of  A""eals Ca"itol Cit# Develo"3ent Bank !ili""ine Bank of  Co33'ni&ations and $. A%ante Marketin2 ?.R. No. ,/*/6 A"ril +* ,--40
 #he serial number is not an essential re4uisite or negotiability under ection o the Negotiable %nstrument La! and an alteration o !hich is not material. #he alteration o the serial number does not change the relations bet!een the parties. (!ili""ine National Bank vs. Co'rt of A""eals Ca"itol Cit# Develo"3ent Bank !ili""ine Bank of Co33'ni&ations and $. A%ante Marketin2 ?.R. No. ,/*/6 A"ril +* ,--40
Alterations o the serial numbers do not constitute material alterations on the chec+s. ince there !ere no material alterations on the chec+s, respondent as dra!ee ban+ has no right to dishonor them and return them to petitioner, the collecting ban+.   (Te International Cor"orate Bank In&. vs. Co'rt of A""eals and !ili""ine National Bank ?.R. NO. ,+--,/ Se"te3%er * +//40
2. =3ect o aterial Alteration
 
dra!ee ban+ pays a materially altered chec+, it violates the terms o the chec+, as !ell as its duty to charge its client7s account only or bona fde disbursements he had made. ince the dra!ee ban+, in the instant case, did not pay according to the original tenor o the instrument, as directed by the dra!er, then it has no right to claim reimbursement rom the dra!er, much less, the right to deduct the erroneous payment it made rom the dra!er7s account !hich it !as e"pected to treat !ith utmost fdelity. (Metro"olitan Bank and Tr'st Co3"an# vs.  Renato D. Ca%il8o ?.R. No. ,*554- De&e3%er 4 +//40
. Acceptance
. Defnition
 #he acceptance o a bill is the signifcation by the dra!ee o his assent to the order o the dra!er. (!r'dential Bank Petitioner  v. Inter3ediate A""ellate Co'rt !ili""ine Ra#on Mills In&. and Ana&leto R. Ci, ?.R. No. 5664 De&e3%er 6 ,--+0
%ndeed, ;acceptance; and ;payment; are, !ithin the purvie! o the la!, essentially di3erent things, or the ormer is ;a promise to perorm an act,; !hereas the latter is the ;actual perormance; thereo. %n the !ords o the La!, ;the acceptance o a bill is the signifcation by the dra!ee o his assent to the order o the dra!er,; !hich, in the case o chec+s, is the payment, on demand, o a given sum o money. (!ili""ine National Bank vs. te Co'rt of  A""eals and !ili""ine Co33er&ial and Ind'strial Bank ?.R. No. L+4//, O&to%er +- ,-460
2. anner
6hen a chec+ had been certifed by the dra!ee ban+, such certifcation is e4uivalent to acceptance because it enables the holder to use it as money. Also, !here a holder procures a chec+ to be certifed, the chec+ operates as an assignment o a part o the unds to the creditor. (Ne7 !a&i9& Ti3%er vs. Seneris ,/, SCRA 464 ,-6/0
Acceptance may be done in !riting by the dra!ee in the bill itsel, or in a separate instrument.  (!r'dential Bank Petitioner  v. Inter3ediate A""ellate Co'rt !ili""ine Ra#on Mills In&. and Ana&leto R. Ci, ?.R. No. 5664 De&e3%er 6 ,--+0
>. #ime or Acceptance
N. 1resentment or Acceptance
. #ime$1lace$anner o 1resentment
1resentment or acceptance is defned as the production o a bill o  e"change to a dra!ee or acceptance. 1resentment or acceptance is necessary only !here the bill is payable ater sight or in any other case, !here presentment or acceptance is necessary in order to f" the maturity o the instrument, or !here the bill e"pressly stipulates that it shall be presented or acceptance, or !here the bill is dra!n payable else!here than at the residence or place o business o the dra!ee. (!r'dential Bank vs. Inter3ediate A""ellate Co'rt !ili""ine Ra#on Mills In&. and Ana&leto R. Ci, ?.R. No. 5664 De&e3%er 6 ,--+0
2. =3ect o <ailure to a+e 1resentment
6hile it is true that the delivery o a chec+ produces the e3ect o  payment only !hen it is encashed, pursuant to Art. 2F o the Civil Code, the rule is other!ise i the debtor is pre8udiced by the creditor5s unreasonable delay in presentment. Ater more than ten (J' years rom the payment in part by cash and in part by chec+, the presumption is that the chec+ had been encashed, and the ailure to encash or more than ten (J' years undoubtedly resulted in the impairment o the chec+ through unreasonable and une"plained delay on the part o the payee. (M#ron C. !a"a vs. A.U. 1alen&ia ; Co. In&. et al. ?.R. No. ,/*,66. >an'ar# +) ,--60
>. Dishonor by Non)Acceptance
. 1romissory Notes
 
 #he buyer o a car shall be liable to pay the unpaid balance on the promissory note and not 8ust the installments due and payable beore the said automobile !as carnapped. 0eing the principal contract, the promissory note is una3ected by !hatever bealls the sub8ect matter o the accessory contract. (!erla Co3"ania De Se2'ros In&. vs. te Co'rt of A""eals :er3inio Li3 And Evel#n Li3 ?.R. No. -45*+ Ma# ,--+0
6hen a promissory note e"presses ;no time or payment,; it is deemed ;payable on demand. (>ose L. !on&e de leon vs. Rea%ilitation $inan&e Cor"oration ?.R. No. L+5*, De&e3%er ,6 ,-/0
6hen there is a discrepancy bet!een the amount in !ords and the amount in fgures in the chec+, the rule in the Negotiable %nstruments La! is that it !ould be the amount in !ords that !ould prevail. (!eo"le of te !ili""ines vs. Martin L. Ro3ero and Ernesto C. Rodri2'e8 ?.R. No. ,,+-6* A"ril +, ,---0
An instrument !hich begins !ith %, 6e, or =ither o us promise to pay, !hen signed by t!o or more persons, ma+es them solidarily liable. Also, the phrase 8oint and several5 binds the ma+ers 8ointly and individually to the payee so that all may be sued together or its enorcement, or the creditor may select one or more as the ob8ect o the suit. (Astro Ele&troni&s Cor". and !eter Ro=as vs.
!ili""ine E="ort and $orei2n Loan ?'arantee Cor"oration ?.R. No. ,)4+- Se"te3%er +) +//)0
1. Chec+s
. Defnition
ettled is the doctrine that a chec+ is the only a substitute or money and not money* hence, the delivery o such an instrument does not, by itsel, operate as payment. #his is especially true in case o post)dated chec+. #hus, the issuance o a post)dated chec+ !as not e3ective payment. %t did not comply !ith the cardholder5s obligation to pay his past due credit card charges. Conse4uently, the card company !as 8ustifed in suspending his credit card. B!I Card Cor"oration vs. Co'rt of A""eals +-4 SCRA +4/ (,--60
2. Hinds
 
business institution is !ritten bet!een the t!o parallel lines, !hich means that the dra!ee should pay only !ith the intervention o that company. #he crossing is general !here the !ords !ritten bet!een the t!o parallel lines are ;and Co.; or ;or payee5s account only,; !hich means that the dra!ee ban+ should not encash the chec+ but merely accept it or deposit. (Asso&iated Bank and Conrado Cr'8 vs. :on. Co'rt of A""eals and Merle 1. Re#es doin2 %'siness 'nder te na3e and st#le HMelissa<s RTWH ?.R. No. 6-6/+ Ma# ,--+0
 #he e3ects o crossing a chec+ are& (' that the chec+ may not be encashed but only deposited in the ban+* (2' that the chec+ may be negotiated only once KK to one !ho has an account !ith a ban+* and (>' that the act o crossing the chec+ serves as a !arning to the holder that the chec+ has been issued or a defnite purpose so that he must in4uire i he has received the chec+ pursuant to that purpose. (State Invest3ent :o'se vs. IAC ,* SCRA ),/ ,-6-0
A memorandum chec+ is an evidence o debt against the dra!er and although may not be intended to be presented, has the same e3ect as an ordinary chec+ and i passed on to a third person, !ill be valid in his hands li+e any other chec+. (!eo"le vs. Nitafan ?.R. No. *-*5 O&to%er ++ ,--+0
A cashier5s chec+ is a primary obligation o the issuing ban+ and accepted in advance by its mere issuance. 0y its very nature, a cashier5s chec+ is the ban+5s order to pay dra!n upon itsel, committing in e3ect its total resources, integrity and honor behind the chec+. A cashier5s chec+ by its peculiar character and general use in the commercial !orld is regarded substantially to be as good as the money !hich it represents. (Tan vs. Co'rt of A""eals ?.R. No. ,/6*** De&e3%er +/ ,--50
 
6hile its manager orged the signature o the authori?ed signatories o clients in the application or manager5s chec+s and orged the signatures o the payees thereo, the dra!ee ban+ also ailed to e"ercise the highest degree o diligence re4uired o ban+s in the case at bar. %t allo!ed its manager to encash the anager5s chec+s that !ere plainly crossed chec+s. A crossed chec+ is one !here t!o parallel lines are dra!n across its ace or across its corner. 0ased on  8urisprudence, the crossing o a chec+ has the ollo!ing e3ects& (a' the chec+ may not be encashed but only deposited in the ban+* (b' the chec+ may be negotiated only once O to the one !ho has an account !ith the ban+* and (c' the act o crossing the chec+ serves as a !arning to the holder that the chec+ has been issued or a defnite purpose and he must in4uire i he received the chec+ pursuant to this purpose* other!ise, he is not a holder in due course. %n other !ords, the crossing o a chec+ is a !arning that the chec+ should be deposited only in the account o the payee. 6hen a chec+ is crossed,it is the duty o the collecting ban+ to ascertain that the chec+ is only deposited to the payee5s account. !ili""ine Co33er&ial International Bank vs. Bal3a&eda?.R. No. ,*6,5) Se"te3%er +, +/,,
>. 1resentment or 1ayment
A 8udgment creditor cannot validly reuse acceptance o the payment o the 8udgment obligation tendered in the orm o a cashier5s chec+. A cashier5s chec+ issued by a ban+ o good standing is deemed as cash. (Ne7 !a&i9& Ti3%er vs. Seneris ?.R. No. 5,45 De&e3%er ,- ,-6/0
 #he obligation o the 8udgment debtor subsists !hen the chec+ issued by a 8udgment debtor !as made payable to the sheri3 !ho encashed the same but ailed to deliver its proceeds to the  8udgment creditor. #his is because a chec+ does not produce the e3ect o payment until encashed. (!ili""ine Airlines vs. Co'rt of A""eals ?.R. No. 5-,66 >an'ar# )/ ,--/0
 
A chec+ may be used or the e"ercise o the right o redemption, the same being a right and not an obligation. ($ort'nado vs. Co'rt of  A""eals ,-4 SCRA +4 ,--,0
 #he 8udgment creditor may validly reuse the tender o payment partly in chec+ and partly in cash. A cashier5s chec+ tendered by the  8udgment debtor to satisy the 8udgment debt is not a legal tender. (Ti%aJia >r. vs. Co'rt of A""eals ?.R. No. ,//+-/ >'ne 5 ,--)0
A chec+ does not constitute legal tender, but once the creditor accepted a ully unded chec+ to settle an obligation, he is estopped rom later on denouncing the e-cacy o such tender o payment. 0y accepting the tendered chec+ and converting it into money, the creditor is presumed to have accepted it as payment and to hold other!ise !ould be ine4uitable and unair to the obligor. ($ar East Bank ; Tr'st Co3"an# vs. Dia8 Realt# In&. ?.R. No. ,)6*66 A'2'st +) +//,0
A stale chec+ is one !hich has not been presented or payment !ithin a reasonable time ater its issue. %t is valueless and, thereore, should not be paid. (International Cor"orate Bank vs. S"s. $ran&is S. ?'e&o and Ma. L'8 E. ?'e&o ?.R. No. ,5,-46 $e%r'ar# ,+ +//,0
6here a manager5s chec+ made payable to 9cash: and appearing regular on its ace, !as presented to another ban+ that immediately honors it K no aulty may be attributed to such ban+ in relying upon the integrity o the chec+, even i payment thereon !as later ordered stopped by the dra!er)ban+ because the one !ho encashed the chec+ !as actually not the intended payee. %n other !ords, as bet!een the ban+ that honored the manager5s chec+ and the dra!er)ban+, it is the latter that should bear the loss. (Se&'rit# Bank and Tr'st Co3"an# vs. Ri8al Co33er&ial Bankin2 Cor"oration ?.R. No. ,/-65 )/ >an'ar# +//-0
a. #ime
 
vs.  S"s. $ran&is S. ?'e&o and Ma. L'8 E. ?'e&o ?.R. No. ,5,-46 $e%r'ar# ,+ +//,0
b. =3ect o Delay
<ailure to present or payment !ithin a reasonable time !ill result to the discharge o the dra!er only to the e"tent o the loss caused by the delay. <ailure to present on time, thus, does not totally !ipe out all liability. %n act, the legal situation amounts to an ac+no!ledgment o liability in the sum stated in the chec+. %n this case, the debtors have not alleged, much less sho!n that they or the ban+ !hich issued the manager5s chec+ has su3ered damage or loss caused by the delay or non)presentment. Defnitely, the original obligation to pay certainly has not been erased. (International Cor"orate Bank vs.  S"s. $ran&is S. ?'e&o and Ma. L'8 E. ?'e&o ?.R. No. ,5,-46 $e%r'ar# ,+ +//,0
I1. Ins'ran&e Code
A. Concept o %nsurance
ne test in order to determine !hether one is engaged in insurance business is !hether the assumption o ris+ and indemnifcation o  loss (!hich are elements o an insurance business' are the principal ob8ect and purpose o the organi?ation or !hether they are merely incidental to its business. % these are the principal ob8ectives, the business is that o insurance. 0ut i they are merely incidental and service is the principal purpose, then the business is not insurance. %n this case, ealth aintenance rgani?ations (s' are not insurance business. (!ili""ine :ealt Care !roviders In&. vs. Co33issioner of Internal Reven'e ?.R. No. ,4))/ Se"te3%er ,6 +//-0
 
' not or the insured alone, but e4ually so or the insurer* in act, it is mere so or the latter, since its dominant bargaining position carries !ith it stricter responsibility. ('a Cee ?an v. La7 Union -6 !il 6* ,-**0
 
 #he cardinal principle in %nsurance La! is that a policy or contract o  insurance is to be construed liberally in avor o the insured and strictly as against the insurance company, yet, contracts o  insurance, li+e other contracts, are to be construed according to the sense and meaning o the terms, !hich the parties themselves have used. (Lali&an vs. Ins'lar Life Ass'ran&e Co3"an# Ltd. *- SCRA ,*- +//-0
Contracts o insurance, li+e other contracts, are to be construed according to the sense and meaning o the terms !hich the parties themselves have used. % such terms are clear and unambiguous, they must be ta+en and understood in their plain, ordinary and popular sense. Accordingly, in interpreting the e"clusions in an insurance contract, the terms used speciying the e"cluded classes therein are to be given their meaning as understood in common speech. A contract o insurance is a contract o adhesion. o, !hen the terms o the insurance contract contain limitations on liability, courts should construe them in such a !ay as to preclude the insurer rom non)compliance !ith his obligation. Al"a Ins'ran&e and S'ret# Co. vs. Castor ?R No. ,-6,5 Se"te3%er + +/,)
0. =lements o an %nsurance Contract
Under ec. 2(a' o the %nsurance Code, an insurance contract is an agreement !hereby one underta+es or a consideration to indemniy another against loss, damage or liability arising rom an un+no!n or contingent event, and !ith the ollo!ing elements& .' %nsured has an insurable interest* 2.' %nsured is sub8ect to a ris+ o  loss by the happening o the designated peril* >.' %nsurer assumes ris+* .' uch assumption o ris+ is part o a general scheme to distribute actual losses among a large group o persons bearing a similar ris+* and .' %n consideration o the insurer5s promise, the insured pays a premium. (!ila3&are :ealt S#ste3 vs. Co'rt of A""eals )- SCRA 5)+ ,--0
<or purposes o determining the liability o a health care provider to its
members, a health care agreement is in the nature o non)lie
insurance, !hich is primarily a contract o indemnity. nce the
member incurs hospital, medical or any other e"pense arising rom
sic+ness, in8ury or other stipulated contingent, the health care provider
must pay or the same to the e"tent agreed upon under the contract.
 
avor o the member. 0eing a contract o adhesion, the terms o an
insurance contract are to be construed strictly against the party !hich
prepared the contract ) the insurer. #his is e4ually applicable to ealth
Care Agreements. #he phraseology used in medical or hospital service
contracts, such as 9 standard charges 9, must be liberally construed in
avor o the subscriber, and i doubtul or reasonably susceptible o t!o
interpretations the construction conerring coverage is to be adopted,
and e"clusionary clauses o doubtul import should be strictly
construed against the provider. #hus, i the member, !hile on vacation,
under!ent a procedure in the UA, the standard charges reerred to in
the contract should mean standard charges in UA and not the cost
had the procedure been conducted in the 1hilippines. $ort'ne
Medi&are In&. vs A3orin. ?.R. No. ,-*6+ Mar& ,+ +/,5.
C. Characteristics$Nature o %nsurance Contracts
 #he only persons entitled to claim the insurance proceeds are either the insured, i still alive* or the benefciary, i the insured is already deceased, upon the maturation o the policy. #he e"ception to this rule is a situation !here the insurance contract !as intended to beneft third persons !ho are not parties to the same in the orm o  avorable stipulations or indemnity. %n such a case, third parties may directly sue and claim rom the insurer. 0ecause no legal proscription e"ists in naming as benefciaries the children o illicit relationships by the insured, the shares o =va in the insurance proceeds, !hether oreited by the court in vie! o the prohibition on donations under Article E>F o the Civil Code or by the insurers themselves or reasons based on the insurance contracts, must be a!arded to the said illegitimate children, the designated benefciaries, to the e"clusion o heirs. (:eirs Of Loreto &. Mara3a2 vs. Eva 1erna De ?'83an Mara3a2 et al. ?.R. No. ,6,,)+ >'ne * +//-0
 
re4uired as premium, !ithout receiving anything thereore in case the contingency does not happen. (Ti%a# vs. Co'rt of A""eals +* SCRA ,+4 ,--40
D. Classes
. arine
 #he evidence sho!s that the loss o the cargo !as due to the perils o the ship* that the sin+ing o the barge !as due to improper loading o the logs on one side so that the barge !as tilting on one side and or that it did not navigate on even +eel* that it !as no longer sea!orthy that !as !hy it developed lea+. A loss !hich, in the ordinary course o events, results rom the natural and inevitable action o the sea, rom the ordinary !ear and tear o the ship, or rom the negligent ailure o the ship7s o!ner to provide the vessel !ith proper e4uipment to convey the cargo under ordinary conditions, is not a peril o the sea but such a loss is rather due to !hat has been aptly called the 7peril o the ship.7 #he insurer underta+es to insure against perils o the sea and similar perils, not against perils o the ship. (Isa%ela Ro'e doin2 %'siness 'nder te na3e and st#le of Isa%ela Ro'e Ti3%er Enter"rises et 
al . vs. Te Inter3ediate A""ellate Co'rt et al . ?.R. No. L 44-)* Nove3%er ,, ,-6*0
 #he rusting o steel pipes in the course o a voyage is a 9peril o the sea: in vie! o the toll on the cargo o !ind, !ater, and salt conditions. (Cata# Ins'ran&e Co. vs. Te Co'rt of A""eals et al . ?.R. No. L4,5* >'ne )/ ,-60
<ire may not be considered a natural disaster or calamity since it almost al!ays arises rom some act o man or by human means. %t cannot be an act o @od unless caused by lightning or a natural disaster or casualty not attributable to human agency. %n the case at bar, it is not disputed that a small Qame !as detected on the acetylene cylinder and that by reason thereo, the same e"ploded despite e3orts to e"tinguish the fre. Berily, the cause o the fre !as the ault or negligence o =L%. (!ili""ine :o3e Ass'ran&e Cor"oration vs. Co'rt of A""eals ?.R. No. ,/4--- >'ne +/ ,--40
 
goods he transported have been lost, destroyed or deteriorated and thereater, the burden is shited to the insurer to prove that the loss !as due to e"cepted perils. %n the present case, there being no sho!ing that the loss !as caused by any o the e"cepted perils, the insurer is liable under the policy. ($ili"ino Mer&ants Ins'ran&e Co. In&. vs. Co'rt Of A""eals et al. ?.R. No. 6*,5, Nove3%er +6 ,-6-0
An 9all ris+s: provision o a marine policy creates a special type o  insurance !hich e"tends coverage to ris+s not usually contemplated and avoids putting upon the insured the burden o establishing that the loss !as due to peril alling !ithin the policy5s coverage. #he insurer can avoid coverage upon demonstrating that a specifc provision e"pressly e"cludes the loss rom coverage but in this case, the damage caused to the cargo has not been attributed to any o  the e"ceptions provided or nor is there any pretension to this e3ect. (Coa Tiek Sen2 doin2 %'siness 'nder te na3e and st#le of Sen2<s Co33er&ial Enter"rises vs. Te Co'rt of  A""eals et al. ?.R. No. 65*/ Mar& ,* ,--/0
2. <ire
As defned by ection J o the %nsurance Code, an open policy is one in !hich the value o the thing insured is not agreed upon but is let to be ascertained in case o loss. #his means that the actual loss, as determined, !ill represent the total indemnity due the insured rom the insurer e"cept only that the total indemnity shall not e"ceed the ace value o the policy. 6here the actual loss in an open policy has been ascertained, the actual determination should be respected in the absence o proo that it !as arrived at arbitrarily. (Develo"3ent Ins'ran&e Cor"oration vs. Inter3ediate A""ellate Co'rt et al. ?.R. No. L,)4/ >'l# ,4 ,-640
>. Casualty
 
la!. ($ort'ne Ins'ran&e and S'ret# Co. In&. vs. Co'rt of  A""eals and !rod'&ers Bank of te !ili""ines ?.R. No. ,,*+6 Ma# +) ,--*0
%t has been aptly observed that in burglary, robbery, and thet insurance, the opportunity to deraud the insurerOthe moral ha?ard Ois so great that insurers have ound it necessary to fll up their policies !ith countless restrictions, many designed to reduce this ha?ard. eldom does the insurer assume the ris+ o all losses due to the ha?ards insured against. 1ersons re4uently e"cluded under such provisions are those in the insured5s service and employment.  #he purpose o the e"ception is to guard against liability should the thet be committed by one having unrestricted access to the property. ($ort'ne Ins'ran&e and S'ret# Co. In&. vs. Co'rt of  A""eals and !rod'&ers Bank of te !ili""ines ?.R. No. ,,*+6 Ma# +) ,--*0
. uretyship
A surety contract is merely a collateral one, its basis is the principal contract or underta+ing !hich it secures. Necessarily, the stipulations in such principal agreement must at least be communicated or made +no!n to the surety.   ($irst Le"anto Taiso Ins'ran&e Cor"oration vs. Cevron !ili""ines In&. ?.R. No. ,6)- >an'ar# ,6 +/,+0
 #he surety bond must be read in its entirety and together !ith the contract bet!een N1C and the contractors. #he provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and then made to control. %n the case at bar, it cannot be denied that the breach o contract in this case, that is, the abandonment o the unfnished !or+ o the transmission line o the N1C by the contractor <==% !as !ithin the e3ective date o the contract and the surety bond. uch abandonment gave rise to the continuing liability o the bond as provided or in the contract !hich is deemed incorporated in the surety bond e"ecuted or its completion. (National !o7er Cor"oration vs. Co'rt of A""eals et al. ?.R. No. L5)/4 Nove3%er ,5 ,-640
 
appropriate. 6hile <inman has rerained rom attaching a copy o  the bond it had issued to its 1etition or Certiorari, there can be no 4uestion that the conditions o the surety bond include the 1=A /ules and /egulation. %t is settled doctrine that the conditions o a bond specifed and re4uired in the provisions o the statute or regulation providing or the submission o the bond, are incorporated or built into all bonds tendered under that statute or regulation, even though not there set out in printer7s in+. ($in3an ?eneral Ass'ran&e Cor"oration vs. Willia3 Ino&en&io et al. ?.R. No. -/+)* Nove3%er ,* ,-6-0
ection EE o the %nsurance Code states that the surety is entitled to payment o the premium as soon as the contract o suretyship or bond is perected and delivered to the obligor. No contract o  suretyship or bonding shall be valid and binding unless and until the premium thereor has been paid, e"cept !here the obligee has accepted the bond, in !hich case the bond becomes valid and enorceable irrespective o !hether or not the premium has been paid by the obligor to the surety. A continuing bond, as in this case !here there is no f"ed e"piration date, may be canceled only by the obligee, !hich is the N<A, by the %nsurance Commissioner, and by the court. 0y la! and by the specifc contract involved in this case, the e3ectivity o the bond re4uired or the obtention o a license to engage in the business o receiving rice or storage is determined not alone by the payment o premiums but principally by the Administrator o the N<A. (Co'ntr# Bankers Ins'ran&e Cor"oration vs. Antonio La23an ?.R. No. ,4*56 >'l# ,) +/,,0
 #he e"tent o the surety5s liability is determined by the language o the suretyship contract or bond itsel. %t can not be e"tended by implications beyond the terms o the contract. aving accepted the bond, the creditor is bound by the recital in the surety bond that the terms and conditions o its distributorship contract be reduced in !riting or at the very least communicated in !riting to the surety. uch non)compliance by the creditor impacts not on the validity or legality o the surety contract but on the creditor5s right to demand perormance.  $irst Le"antoTaiso Ins'ran&e Cor"oration vs Cevron !ili""ines ?R No. ,6)- >an'ar# ,6 +/,+
. Lie
 
benefts shall accrue to his estate and !ill be distributed among his legal heirs in accordance !ith the la! on intestate succession. ( ReK Clai3s for Bene9ts of te :eirs of te Late Mario vs. Canlion2&o Ad3. Matter No. I-/RET. O&to%er ,6 ,-0
A lie insurance policy is no di3erent rom a civil donation insoar as the benefciary is concerned or both are ounded upon the same consideration& liberality. A benefciary is li+e a donee, because rom the premiums o the policy !hich the insured pays, out o liberality, the benefciary !ill receive the proceeds or profts o said insurance. As a conse4uence, the proscription in Article E>F o the ne! Civil Code should e4ually operate in lie insurance contracts. #he conviction or adultery or concubinage is not necessary beore the disabilities mentioned in Article E>F may e3ectuate. %t !ould be su-cient i evidence preponderates upon the guilt o the consort or the o3ense indicated. (Te Ins'lar Life Ass'ran&e Co3"an# Ltd. vs. Car"onia t. E%rado And !as&'ala 1da. De E%rado ?.R. No. l55/*- O&to%er +6 ,-0
 #here is nothing in the policy that relieves the insurer o the responsibility to pay the indemnity agreed upon i the insured is sho!n to have contributed to his o!n accident. %ndeed, most accidents are caused by negligence. Lim !as un4uestionably negligent and that negligence cost him his o!n lie. 0ut it should not prevent his !id